Fiat Chrysler's Europe arm forecast to have 'break-even' Q2; long-term outlook less positive

Fiat Chrysler Automobiles is expected to report positive quarterly financial results on Wednesday as gains in North American are forecast to help offset the automaker’s slumping sales in Europe.

Demand for FCA models fell 11 percent to 524,846 in Europe during the first half of the year, according to JATO Dynamics, while the overall market declined 3.1 percent.

Evercore ISI analyst Arndt Ellinghorst said that while FCA’s European operations will likely remain in “break-even territory” in the short term he expects things to turn “more negative due to CO2 regulation in 2020.”

According to analysts from PA Consulting Group, FCA's CO2 emissions in Europe will fall to 98.5 grams per kilometer by 2021 from 120g/km now, meaning the automaker will miss its regulatory target of 91.8g/km. This leaves FCA at risk of an European Union fine of 700 million euro ($780 million) in 2021, PA Consulting said in a report.

George Galliers, an analyst at Goldman Sachs, is also concerned about said FCA’s emissions risks. “Given investment lead times, it will take time to bring the product portfolio up to date, leaving volumes, pricing and compliance at risk,” he wrote in a July 15 note to investors.

FCA plans to spend 1.8 billion euros ($2 billion) in the next three years to buy regulatory credits from brands such as Tesla to minimize the emissions-related fines it will pay in Europe.

The automaker also needs to combat a sales slump that has affected most FCA brands in the first six months of the year.